Court Limits Use of Liens by Hospitals

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Times Staff Writer

Hospitals can no longer recover additional costs from insured patients by placing liens on personal injury awards, the California Supreme Court ruled Monday.

Plaintiff attorneys hailed the unanimous decision as a victory for consumers. For California hospitals, it marked a financial setback, cutting off another source of potential income.

The court ruled in a case filed against San Joaquin Community Hospital by Joel Parnell, who was hit while riding in a taxi and treated at the hospital, located in Kern County. Parnell’s health plan had negotiated a discount in advance with the facility.


When the $5,000 hospital bill came due, Parnell paid his $1,000 co-payment and his health plan covered the rest.

Parnell, a beer truck driver, wasn’t able to continue in that profession and was counting on a settlement from the other driver’s insurance company to help make up for his lost income. He eventually won a $15,000 settlement, but the hospital placed a lien on any settlement for the same amount. So Parnell sued.

The hospital was “trying to take money out of his pocket,” said William K. Hanagami, a Los Angeles lawyer who represented Parnell. Hanagami said he was pleased the court had stopped a practice he described as “double dipping.”

The case centered on a 44-year-old state law allowing hospitals to sue and take other measures to collect debts from uninsured patients. Parnell’s lawyers said the San Joaquin hospital had abused the intent of the law.

“This decision strikes down a practice by the hospital industry here in California that’s been going on for well over 10 years,” Hanagami said. Hospitals had won millions of dollars in additional payments, he said, “and it was a relatively well kept secret from the general public.”

San Joaquin Community’s lawyer, Barry Landsberg, told the Associated Press that the disputed practice was lawful and that such liens were put in place to confront “severe challenges” to hospitals’ “very existence.”


Representatives for Adventist Health System/West, the hospital’s parent, couldn’t be reached for comment.

Several hospital operators, including the University of California, had filed briefs in the case.

Even before the ruling, the long-running dispute had prompted some hospitals to retool their contracts with health plans, said Jan Emerson, a spokeswoman for the California Hospital Assn., which filed a brief in the case.

Because health plans are in a stronger bargaining position than many hospitals, some contracts include such deep discounts that hospitals lose money every time one of the plan’s patients comes in, Emerson said.

As a result, hospitals are doing whatever they can to cover their costs, she said. “Health plans already don’t pay hospitals what it [actually] costs to provide care.”

The decision means that the rates hospitals negotiate with health plans -- no matter how unfavorable -- are binding, said Lisa Perrochet, a lawyer for a group of personal injury insurance carriers who filed a brief in the case. The court told them, “ ‘You got a contract; live by your contract.’ ”


Daron Tooch, a lawyer who represents hospitals in payment disputes with health plans, said the ruling would press hospitals to drive better bargains with health plans.

“Hospitals should be more careful about the contracts they do enter into ... to make sure they are being fully compensated,” he said.